Thursday, August 24, 2006

R.I.P. Pluto

Feb 18, 1930 - Aug 24, 2006

Survived by Mercury, Venus, Earth, Mars, Jupiter, Saturn, Uranus, and Neptune. Although the youngest and smallest of a family of nine, he had a heart bigger than the Sun. He will be missed dearly by all that knew him. May he rest in eternal orbit about the sun.

Thursday, August 03, 2006

Private Equity Value Added?

With the recent surge in private equity LBOs in the last few years, one has to wonder what purpose they actually play in the today's capital markets. Unlike VCs that fund successful upstarts like the Googles and eBay, PE's main claim to fame is in buying up distressed companies using high amounts of debt and supposedly turning them around before an IPO.

The concept is great and if executed, I imagine quite a bit of shareholder value is added. However, a recent BusinessWeek article suggests that the average turnaround period has drastically shrunk over the past few years and I too question whether much can be done in a year or so to fundamentally repair a business. Sure, they can load it up with debt and issue a 'special' dividend to the new owners right before they go public. However, post-IPO equity returns speak for themselves. PE IPOs, on average, tank or move little from their IPO price...

I suppose that's no surprise when a company is so straddled with debt that most of its cash flows are going toward interest expense. What can management do to in such a handicapped situation? They're working capital is limited and they are so highly leveraged already that to attempt any capital expenditures would involve junk bond status (if they aren't already there....).

What is left, then, is a company that must slowly recover from what was supposed to be a recovery operation to begin with! Where is the justification of the insane pay that PE types receives? Being private, they aren't watched like a hawk by the SEC and FASB and management doesn't have to answer to angry shareholders that are increasingly activist, namely hedge funds.

Doesn't this strike you as a bit similar to real estate 'flipping' where real value added is hard to find because the transaction isn't under watchful public scrutiny? Let this be another example of the wisdom of crowds. For all the flak that companies give Wall Street for its unrealistic expectations, there is something to be said for thousands of analysts scrutinizing even the tiniest detail in a transaction..

Friday, July 28, 2006

WTO Doha Round Failure

Well folks, it looks as if the recent WTO trade talks have come to a screeching halt. President Bush's ability to green light any agreement without Congress' approval is fast approaching. What is stopping the talks? The usual: agricultural trade barriers.

This has always struck me as a funny reason for ending talks that could ultimately raise millions of people out of poverty. Why is there such resistance to eliminating farming subsidies in the US and EU? Farmers, after all, only account for about a percentage of the US population. How do they have such lobbying power which rivals the tobacco industry in its ability to hold sway over Congress? Simply put, farming is no longer controlled by individual farmers but rather by large corporations. The massive subsidies that are endowed upon these farms go straight into the pocketbooks of shareholders. A fraction of that money finds its way back into Congress for lobbying purposes but ultimately, it only aides in fattening companies' balance sheets.

This is distasteful to me not only because it is a blatant waste of tax dollars but also because the original purpose of subsidies was to allow individual farmers to weather crop failures. With financial derivatives and the ability to hedge against crop failure as it is today, there is absolutely no need for these wasteful subsidies.

Today, international trade has been driven back into the 20th century...

Wednesday, July 26, 2006

Give Bernanke a Break

I must admit that I'm sick and tired of the financial media beating up our new Fed Chairman for being 'too transparent,' if such a thing really exists. First and foremost, he is in the awkward position of trying to contain inflation with little of the credibility that Greenspan enjoyed during his tenure. This is mainly why he has constantly reiterated the Fed's flexible stance on interest rates according to leading economic indicators.

This essentially forces the market to think for itself as economic data is released on whether the economy is cooling, holding its ground, or at risk for a recession. Naturally, higher volatility has ensured and VIX traders are having a field day with this. However, much like the volatility caused by hikes in commodities over the past year or so, the market will become accustomed to a more flexible Fed and less sensitive to economic indicators. Hopefully, this will mean a return to the fundamentals and investors will look beyond day to day happenings in the markets.

Friday, August 12, 2005

Bite the Hand That Feeds

Am I the only person that genuinely feels rotten to my core when I hear that NiN song? Listen to the words just once and your gut becomes warranties... All in an instant, you know that you haven't been true to the morals that you KNOW are right since childhood. While the path to hell is paved with good intentions, you never saw it coming. Each decision made sense at the time. But looking back and toward the future, you have to wonder what you've become and where your heading.. For me, I feel like I have rejected a life of science and self-sacrifice to aide mankind. Instead, I will be going off to law and business school in a few years to hopefully 'make it.' The problem with this notion, however, is that I'm viewing the two extremes as polarized. Is it not possible for a businessman to be socially conscience or a scientist bent on world domination? I'd argue that sure it is and in fact, it's the most likely scenario.

This is why it irritates me to no end with our two party system and peoples tendency to have polarizing views. Everyday, it seems as if I'm bombarded with messages from both sides of the aisle attacking the other's views. The problem with this is that it gives the message that the majority of the population sits firmly in one camp or the other. One quick look at recent election turnouts or even everyday experiences and we see that this is not the case. I'd venture that it is simply those of one extreme that are heard the most in the media. Where then does that leave the majority of Americans? Either at home apathetic to our political system or voting on the issues that directly affects them. This is a very dangerous situation that leads a vacuum in Congress that is susceptible to rapid changes in seats simply due to current events. Just look at 9/11 and its influence on House seats that swung to the current White House administration's affiliation. This situation also leads both sides desperate to gain the upper hand. When they cannot count on constituents to vote along party lines, they must look elsewhere to drum up support. This support is increasingly coming from polarized lobbyists from corporation's, radical labor unions, and religious organizations. No wonder then that when the extremities control Congress that much of their legislation favors the views of the minority. John Stuart Mill might have wrote about the 'tyranny of the majority' but he lived in a world far removed from ours where the elite few hold sway over our precious democracy.

Thursday, August 11, 2005

And Now for Something Completely Different

While many of you have likely passed out after my first post, I want to thank the rest of you for bearing with me. I promise that I will provide a decent mix of casual topics along with more personal ones. Oh, and because your all so lucky, I'm doing a special double post for my first entry just because I care... Also, I guarantee that my blogs won't devolve into a list of what I simply ate and did during the day which I find so common on blogger...

Today, I received my grades in the mail for summer classes that I took at Joliet Junior College. One of them was a Music 101 class that I had taken as a gen ed for my liberal arts degree at Augustana. It then struck me that this was pretty much the first music, nay art class that I had taken in at least 6 years. Sure that may not seem like a lot to some but you have to remember that at 20 years old, that leaves me at the very tender age of 14 when I was last asked to appreciate art. Back then, art class was essentially a glorified recess which consisted of PlayDough fights and drawing. Over these last 6 years, I have been bombarded non-stop with math, science, and computer classes which have no doubt affected my majors in college. In all this time, I feel that I have gained considerable technical knowledge in these areas which I once felt as the only knowledge worth learning. Such 'soft' knowledge as the humanities was best left to the other half of the population that was content with just philosophizing but not really getting much done.

The seeds of doubt in my beliefs first sprang during my freshmen year in college where I took a science literature class that emphasized the debates between science and the humanities. There I learned the folly of truly focusing on technical skills: they are entirely useless in proving one's point to non-technical people. What good is a mathematical proof if you cannot explain it in layman's terms to the masses? 'Forget the masses' one very cynical person might say. However this is ignoring the noble pursuit that science has allowed itself over the years. Science is pursued to better understand the universe and hopefully in doing so, we can better mankind. Many might see this as injecting altruistic tendencies in something that is naturally devoid of them. That might be so but no man is an island capable of unlimited budgets. If no practical worth is seen in research, much of the time it is scrapped. Just ask NASA about its budget reductions in recent years about what useful applications they have planned for Mars visits. I'm sure that it will come up lacking. It takes a very enterprising individual indeed to give compelling reasons to both scientists and investors alike to pursue research.

For my music class, we were required to write a critique on a book concerning music. Always looking to indulge in some history, I found a book, Stradivari's Genius, that gave a historical account of the life and influence of Antonio Stradivari, famed violin luthier. In it, I learned much of the great virtuoso violin players of the last 2 centuries. However, it is with great bewilderment that I actually found myself appreciating classical music as a result of this book. This was not possible, I told myself. A mere book of artistic origin couldn't possibly be of such merit. I had 'learned' little in the realm of facts or figures following the book but still felt entirely satisfied with it. Never had I considered pleasure as an intended objective of a book. For quite some time have I maintained disdain for fiction 'trashy' novels whose only aim is to entertain. If I don't come away from a book 'smarter,' why not just watch a movie as it'll take less time anyway? I am still working out the answer to that question but it's become clear that intelligence is not limited to that which can be expressed in figures or data. Rather than gaining knowledge from the book, I developed a broader perspective on the humanities. So much, in fact, that I am contemplating a joint JD-MBA degree now which is both a business and law one. Maybe there can I strike a balance between my love of numbers and life itself.

Wednesday, August 10, 2005

You Win

Well, it seems that I finally did it. I have created that which I have mocked for the last few years: I have created a blog, a shrine to self-glorification and pretense. It is my hope that by entering this endeavor with these facts in mind, I can somehow move to make this blog more than simply ramblings from the village idiot...

I must be forward with my reasons for creating a blog as to not bore anyone that stumbles upon it with misconceptions of some greater purpose. I am creating this blog simply as an expression of my inward thoughts in the hope that by putting them to written words, I can begin to understand my views and more importantly, my place in this world. It is this preoccupation with my 'place' in this world that has so driven me to re-evaluate much of my life periodically. Once, I was so sure that I indeed had all the answers and my path was clear in life: I would pursue a life of self-sacrifice and toil to become a respected profession like a doctor or lawyer. Along the way, I would aide others and in doing so, fulfill my inner desire for the approval of others and boost my already sizable ego in the process. Quite recently, it occurred to me that this wouldn't fulfill any hole inside me. Instead, I would simply be walking down the oft traveled road to the American Dream. Is the Dream dead to me before I even give it a change? That, I cannot say.